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One Chinese word you will hear constantly about doing business in
China is guanxi. Although guanxi is
inconsistently translated into English, it roughly means
relationship. Although it is often discussed, perhaps no business
concept is more misunderstood when doing business in China. Below
of we offer some thoughts on what guanxi is and isn’t,
why it’s important, and how to develop and maintain it.
What Guanxi is

Fundamentally guanxi is about building a network of
mutually beneficial relationships which can be used for personal
and business purposes. In this sense, guanxi is not so
much different than the importance of having a strong network
when doing business in any country. However, in China,
guanxi plays a far more important role than it does in
the West. While in the other parts of the world, you may be able
broker a deal just through formal business meetings; in China it
is necessary to spend time getting to know your Chinese
counterparts outside the boardroom during tea sessions and dinner
banquets. In addition to the time commitment, the depth of
relationships developed through guanxi can be much
deeper than business relationships in the west. For example, it
is not uncommon for people who have strong guanxi to
lend money to one another or to form a group to pursue business
opportunities together.

What Guanxi is not

While guanxi is an important part of doing business in
China it is not the be-all and end-all of it. Having strong
relationships alone will not ensure that you will be able to
achieve your business goals in China. Your company will still
need to have a strong overall business operation in order to be
successful. You should also treat with skepticism those who claim
that guanxi alone can enable your company to succeed in
China. While these connections can help you open doors and find
new opportunities, your company will still need all of the other
components of your business to be strong if you want to grow in
China.

Why Guanxi is Important in China and for Your
Business

Guanxi’s importance in China has developed as a result
of the cultural implications of the rule of law and the concept
of face. For millennia, China has lacked a strong rule of law.
Because the law has not often been able to provide the legal
protections which it does in the west, Chinese people needed to
develop another means of ensuring trust amongst themselves in
personal and business matters. Maintaining face, or reputation,
among people within one’s own network is also an important
characteristic of Chinese culture. Because of the importance of
maintaining face, Chinese people will usually not take advantage
of a person with whom they have guanxi. This is true
because if they develop guanxi with them and they were
to take advantage of them, all of the people in their network
would know what they had done and they would lose face with this
network. By losing face they would also lose the respect of
others in the group and potentially lose their connection with
their network. Therefore guanxi has become a means of
building trust that law cannot always provide for Chinese people
in personal and business matters.

For these reasons, a Chinese company will feel far more
comfortable doing business with a company which they have strong
guanxi because they believe it will make it far easier
for them to trust their business counterpart. It is equally
important for foreign companies to develop strong guanxi
with Chinese companies and government organizations. This
guanxi will help your company in case you run into
problems doing business in China. In addition, Chinese companies
will feel more comfortable doing business with you if they have
strong guanxi with your either because you have built a
strong relationship with them or you were introduced to them by
someone in their network.

How to Develop and Maintain
Guanxi

While developing guanxi is important to doing business
in China it is not necessarily easy to develop, especially for a
foreign company. Having a full-time, long-term presence in China
is essential to developing and maintaining guanxi. In
addition, to effectively develop guanxi your company it will be
helpful to have a native-born Chinese person to be responsible
for developing these relationships. A native Chinese person will
be familiar and comfortable with the cultural niceties of
developing guanxi in China. Your local Chinese staff or
representative should meet regularly, in both formal and informal
settings, with potential and current customers and relevant
government agencies to develop strong relationships on behalf of
your company. If government relations are important to your
business your company may also want to consider hiring someone
experienced working with the Chinese government on a full or
part-time basis to leverage their contacts and experience with
the government on your company’s behalf.

Mr. Goh is President and Mr. Sullivan is Director of Business
Development and Communications at US-Pacific Rim International,
Inc. (www.us-pacific-rim.net). If you have questions,
comments, or would like to learn more about USPRI you can contact
Mr. Sullivan at info@us-pacific-rim.com.